Endogenous Technological Change Along the Demographic Transition

Abstract

Does population ageing hurt output per capita? Standard life-cycle models that consider two fundamental forces, capital deepening versus declining employment rates, predict yes. Using a quantitative overlapping generations model with R&D-driven growth, this paper challenges that prediction through a third possibility: that ageing populations boost R&D investment and therefore generate technological change. Calibrated to the United States, the model predicts that the demographic transition between 1950 and 2100 increases annual per-capita growth by 0.33 percentage points until 2000 and by 0.16 percentage points overall. The key mechanism is the endogenous technological change, whose growth contribution triples that of capital deepening.